July 3 (Bloomberg) -- The seven largest U.S. health insurers plunged on the New York Stock Exchange after analysts downgraded UnitedHealth Group Inc., Aetna Inc. and Health Net Inc. and expressed doubts about the group's long-term outlook.

Health Net slid $3.09, or 12 percent, to $22.55, its lowest price since Oct. 25, 2004, at 1 p.m. on a holiday-shortened trading day. Aetna, the best performer of the companies this year, dropped $2.65, or 6.7 percent, to $37.14. UnitedHealth fell $2.16, or 8.6 percent, to a five-year low of $22.96.

UnitedHealth, the biggest of the companies, reduced earnings expectations yesterday, citing declines in commercial membership, growth in medical expenses, and strong price competition. Today, analyst Justin Lake of UBS Securities changed UnitedHealth's rating to neutral from buy. Aetna and Health Net face the same pressures, said Goldman Sachs analyst Matthew Borsch, who downgraded them to sell from neutral.

``We expect margin deterioration across most'' of Health Net's medical plans, said Goldman analyst Matthew Borsch in a note to clients today. ``For Aetna, our view is that the company cannot remain immune from the margin pressure impacting other carriers in the price-sensitive commercial risk business.''

The six-member Standard & Poor's 500 Managed Health Care Index fell 6 percent today, and has given up 50 percent this year. The market value of Minnetonka, Minnesota-based UnitedHealth dropped to $28.2 billion from $75.2 billion at the end of last year.

Revised Forecasts

Yesterday's reduced forecast by UnitedHealth was the eighth issued this year by the seven largest insurers. Coventry Health Care Inc., of Bethesda, Maryland, Indianapolis-based WellPoint Inc. and UnitedHealth each cut expectations twice. Health Net, of Woodland Hills, California, and Louisville, Kentucky-based Humana Inc. each did so once. After cutting its projected earnings for the year by at least $1.35 a share, Humana later added back 10 cents.

The approaching U.S. presidential election and growing sentiment in Congress to lower payments to Medicare-backed health plans for the elderly have added to uncertainty, said Thomas Carroll, an analyst with Stifel Nicolaus & Co. in Baltimore.

``This year we are recognizing that the world of managed care is not what we thought it was,'' Carroll said today in a telephone interview. ``It's no longer a margin expansion story. It's going to be something else. Investors are transitioning their expectations.''

Election Uncertainty

The election will clarify whether government-backed private health plans will be expanded, Carroll said. Then, investors will be able to figure out what profits they should expect from insurers, he said.

Subsidized coverage has been the fastest-growing segment for most insurers in recent years. The government will pay insurers $122 billion this year to provide drug and medical benefits for Medicare enrollees.

UnitedHealth said yesterday that demand fell in the second quarter for the most profitable employer-sponsored and individual health plans, those for which the company bears the financial risk of paying medical claims. After earlier profit declines, the insurer raised prices and lost traction in an ``intensely competitive commercial business environment,'' according to a company statement.

Gross margins declined for UnitedHealth's Medicare plans that provide drugs and specialized coverage for people with chronic diseases, the company said.

To contact the reporter on this story: Avram Goldstein in Washington at agoldstein1@bloomberg.net.

Last Updated: July 3, 2008 13:22 EDT